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Search for IncomeLPL FINANCIAL RESEARCH
Fourth Quarter 2012
Getting Tougher
OverviewThe Search for Income publication is a quarterly guide
to our top ideas for income-producing securities and strategies.
This publication offers active and passive income suggestions from
our current mutual fund recommended list, along with suggested
exchange-traded funds (ETFs). Many of the asset classes/sectors can
be used individually or in a diversified portfolio, and several are
currently employed in our model portfolios. This publication
highlights:
§ Favorite sector/asset class ideas
§ Implementation
The economic forecasts set forth in the publication may not
develop as predicted and there can be no guarantee that strategies
promoted will be successful.
The task for income-seeking investors continues to get more
difficult after broad-based yield declines in 2012 [Figure 1].
Although the 10-year Treasury yield finished 2012 a modest 0.13%
lower, yields on more economically sensitive fixed income sectors,
such as investment-grade corporate bonds, emerging market debt, and
high-yield bonds plunged to new record lows in an ongoing theme of
lower and lower yields.
On a positive note, lower yields are a result of higher prices
and total returns, as non-government bond sectors reached or
exceeded the high end of our expectations as published in our
Outlook 2012* in late 2011. Investment-grade corporate bonds,
emerging market debt, and high-yield bonds produced attractive
total returns for investors in 2012. Absent a return to recession
that would undermine the strong fundamentals underlying each
sector, we believe these sectors will continue to offer investors
better total returns, even if much less than investors enjoyed in
2012. Higher yielding segments remain attractive, in our view, as
return generation is now largely driven by yield, given the high
levels of bond prices.
Unfortunately, the now-lower level of yields means that both
income generation and total returns are likely to be lower.
High-quality bond yields are likely to be pinned low due to a
sluggish economy, a Federal Reserve (Fed) that remains on hold but
continues to pressure long-term Treasury yields lower with bond
purchases, and legislative uncertainty from Washington, which may
adversely impact the U.S. economy. European debt problems, which
have faded for the time being thanks to aggressive action from
central banks, may resurface should economies not rebound or fail
to proceed with needed reforms. High Treasury valuations suggest
that price declines are certainly possible. At best, however, this
is likely to create a tug-of-war between the factors above, helping
to keep yields lower. Therefore, any Treasury weakness (and
subsequent rise in yields) is likely to be limited.
Among more economically sensitive bond sectors, high-yield bonds
stand out as one of our favorite investments and a source of income
generation. Currently, our best ideas for income generation
are:
§ High-yield bonds (taxable and tax-free)
§ Emerging market debt (EMD)
§ Investment-grade corporate bonds (intermediate- and
long-term)
§ Preferred stocks
1 Yields Declined Across the Bond Market in 2012
Source: Barclays Index data, LPL Financial 01/04/13
All Barclays indexes mentioned herein are unmanaged and cannot
be invested into directly. Past performance is no guarantee of
future results.
Jan ‘12Jan ’13
6.1
5.7
4.3
2.7
2.2
0.9
8.4
6.8
6.1
3.7
2.8
1.0
0 1 2 3 4 5Percent
6 7 8 9
Treasury
Municipal
Investment-Grade Corporate
Emerging Market Debt
High-Yield Municipal
High-Yield Corporate
* LPL Financial provided this range based on our earnings per
share growth estimate for 2012, and a modest expansion in the
price-to-earnings ratio. Please see our 2012 Outlook and 2012
Mid-Year Outlook publications for further information.
All returns listed herein are as of December 31, 2012, unless
otherwise noted.
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§ Bank loans (floating rate funds)
§ Build America Bonds (BAB)
High-yield bonds (taxable) remain our favorite idea within fixed
income, as the sector provides a combination of yield and fair
valuation. Valuations improved throughout 2012, with the average
yield advantage over comparable Treasuries dropping to 5.1%, which
is now just below the long-term average of 5.8%. With defaults
expected to remain low, we believe current yield spreads provide
adequate compensation for high-yield investors.
Emerging market debt prices, similar to high-yield bonds,
benefited from investors’ demand for higher yielding bonds and
reduced European debt fears. Central bank rate cuts provided an
additional tailwind, and the stronger growth trajectory of emerging
market (EM) countries remains on track. EMD valuations remain fair
with an average yield advantage of 2.9% more than comparable
Treasuries, but yields stand out in a low-yield world. EMD remains
a higher quality alternative compared with high-yield bonds for
income-seeking investors.
Investment-grade corporate bonds outperformed Treasuries in 2012
due to receding European debt fears and expectations of central
bank action. Investment-grade corporate bonds were a primary
beneficiary of the Fed’s latest bond purchasing efforts.
Unfortunately, corporate bond strength translated to still-lower
yields. Valuations improved, with the average yield advantage to
comparable Treasury bonds narrowing to 1.4%, down from 2.3% at the
end of the second quarter of 2012. Investment-grade corporate bonds
remain the best income-producing option among high-quality domestic
bonds, especially considering the low yields on other high-grade
bond sectors, such as Treasuries and mortgage-backed securities
(MBS). The high-quality nature of investment-grade corporate bonds
makes them more sensitive to future increases in interest rates;
however, we expect yields to remain relatively stable with only
modest upward pressure over the coming months.
Preferred stocks continued to improve in 2012, but at a slower
pace as the year went on. Lower yields and forthcoming regulatory
changes led to preferred issuers redeeming their higher
interest-paying issues at a steady pace. The furious pace of
redemptions caused the preferred market to shrink overall in 2012,
according to Bank of America Merrill Lynch Index data, which also
supported prices. In response, yields declined but remain a viable
income option at an average yield of 5.1%.
Bank loans are becoming an increasingly attractive opportunity
for income-seeking investors. Given the increase in high-yield
valuations in 2012, the yield advantage of high-yield bonds to bank
loans has shrunk. Investors may consider bank loans, which have
historically exhibited much less volatility than high-yield bonds,
while foregoing less yield. We still find high-yield bonds
attractive, but bank loans are becoming a more attractive
alternative, given lower yields and higher valuations across the
bond market.
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Build America Bonds are among the most interest rate sensitive
of our income-producing ideas, but thanks to strong demand for
municipal debt, taxable and tax-free, BABs managed additional price
gains in 2012. A scarcity premium due to the lack of new issuance
and high credit quality continue to support BAB prices also. We
believe BABs can still be used for income generation with high
overall credit ratings and an average yield of roughly 4.4%,
according to Wells Fargo Index data.
Another strategy to consider would be the income-focused theme
in Model Wealth Portfolios (MWP), which combines multiple asset
classes and sectors. The goals of this portfolio are to seek excess
total return and, secondarily, to generate significantly higher
overall yields than the LPL Financial Research blended
benchmarks.
Favorite Sector/Asset Class Ideas
High-Yield Bonds (Taxable and Tax-Free): Our Preferred Asset
Class Within Fixed Income
High-yield is an obvious asset class for income-seeking
investors. High-yield bond prices increased in 2012, with yields
dropping to a new record low. We expect additional price
improvement will be limited if any, but the sector is still one of
the more attractive income vehicles for investors.
The average yield advantage, or spread, of high-yield bonds to
Treasuries narrowed to 5.1%. This spread is slightly below the
long-term average, but we still find the sector attractive because
such a yield level still compensates for the expected level of
defaults. High-yield bonds still stand out, given the low level of
Treasury yields and other competing fixed income investments
[Figure 2].
In our view, the current yield spread compensates for the modest
increase in defaults we expect over the coming months. The global
default rate increased to 2.6% at the end of 2012, up from 1.8% in
December 2011. Moody’s Investor Service has forecast a slight
increase to 3.0% by the end of 2013. We believe the current yield
spread on high-yield bonds compensates for expected defaults
[Figure 3]. Therefore, we find high-yield bonds fairly priced, and
they provide adequate compensation for potential default risks over
coming months.
We find Moody’s default forecast reasonable, given the
tremendous amount of debt that high-yield companies have
refinanced. High-yield issuers have taken advantage of low interest
rates, and very few high-yield bonds mature between now and the end
of 2013. In 2012, the refinancing trend has continued with just
over 50% of new high-yield issuance used for refinancing purposes,
which we view as healthy and a positive for credit quality.
The average yield of high-yield bonds set a new record low of
5.8% in early 2013. The near-record low yield must be put in the
context of a low-yield world and still is a notable advantage to
Treasuries [Figure 4].
2 High-Yield Bond Valuations Have Become More Expensive
Source: Barclays, Bloomberg, LPL Financial 12/31/12
The Barclays High-Yield Bond Index is an unmanaged index and
cannot be invested into directly. Past performance is no guarantee
of future results.
High-yield spread is the yield differential between the average
yield of high-yield bonds and the average yield of comparable
maturity Treasury bonds.
222018161412108642
(%)
Barclays High-Yield Bond Spread to Treasuries Long-Term
Average
‘91 ‘93 ‘95 ‘97 ‘99 ‘01 ‘03 ‘05 ‘07 ‘09 ‘11 ‘13
3 The Average Yield Advantage of High-Yield Bonds Compensates
for Expected Defaults
Source: Barclays, Moody’s, LPL Financial 01/11/13
The Moody’s default rate represents the percentage of companies
rated below investment-grade (Baa3) by Moody’s, which have
defaulted over the preceding 12 months. Default is defined as a
failure to make an interest payment, repay principal at maturity,
or debt exchanges where bondholders are forced to accept a reduced
principal amount at maturity and terms of original debt are
materially altered.
21191715131197531
High-Yield SpreadDefault Rate
(%)
‘04 ‘05 ‘06 ’07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13
Forecast
Bonds are subject to market and interest rate risk if sold prior
to maturity. Bond values will decline as interest rates rise and
are subject to availability and change in price.
High-yield/junk bonds are not investment-grade securities,
involve substantial risks, and generally should be part of the
diversified portfolio of sophisticated investors.
Default rate is the interest rate charged to a borrower when
payments on a revolving line of credit are overdue. This higher
rate is applied to outstanding balances in arrears in addition to
the regular interest charges for the debt.
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For diversification purposes and to reduce individual security
risk, LPL Financial Research strongly recommends investors use a
mutual fund or ETP (exchange-traded product) for exposure to this
asset class. In general, high-yield bond funds provide yields
between 5.0% and 8.0% (according to Morningstar data), but of
course entail greater credit risk relative to investment-grade
bonds.
Investors, regardless of tax bracket, may wish to consider
municipal (tax-free) high-yield bonds. The local-only exposure of
municipal high-yield bonds insulated them from market concerns over
Europe and helped support prices. While municipal finances remain
under stress, issuers continue to make positive incremental
progress. According to the Municipal Securities Rulemaking Board
(MSRB) and Municipal Market Advisors data, the number of municipal
issuers defaulting declined for the fourth consecutive year in
2012. Municipal defaults that have occurred remain concentrated in
the most speculative sectors, with the vast majority coming from
non-rated issuers. We continue to find the asset class attractive
with an average yield of 5.7%, according to the Barclays High-Yield
Municipal Index.
Please be aware that the vast majority of tax-free high-yield
funds generate income that is subject to AMT (Alternative Minimum
Tax). Again, we recommend investors use a fund to gain exposure.
Please contact fund or ETP companies directly to obtain a copy of
the prospectus for the percentage of income subject to AMT.
Emerging Market Debt (EMD): Benefitting From Emerging Markets
Growth
Emerging market debt (EMD) prices rose notably in 2012, as more
forceful action from the European Central Bank (ECB) and continued
bond buying by the Fed alleviated fears over global economic growth
and financial market risk. Investor demand for higher yielding bond
sectors increased in response, and a few emerging market central
bank interest rate cuts provided an additional tailwind.
EMD valuations, as measured by narrowing yield spreads, improved
in 2012 but represent fair value, in our view. Emerging market
economies are still on pace to grow two to three times as quickly
as developed countries, and valuations remain notably above
pre-recession levels at 2.8% [Figure 5].
The current yield of the Barclays Global Emerging Markets Bond
Index, 4.3%, stands out in a low-yield world and is attractive for
income generation, particularly given still-strong economic growth
in emerging market economies [Figure 6]. For investors seeking a
higher quality alternative to high-yield bonds, EMD may be the
right solution. EMD issuers may continue to benefit from faster
economic growth than their developed nation counterparts. EMD
issuers also possess better credit characteristics: debt-to-GDP
(gross domestic product) ratios are lower than developed nations,
and most EMD issuers possess large excess reserves. Inflation has
stabilized, and emerging market central banks produced numerous
interest rate cuts over 2012. Interest rate cuts should help reduce
economic growth risks and support EMD prices. Recent improvement in
Chinese economic data, a key driver of EM growth, supports our
growth expectations.
International and emerging market investing involves special
risks such as currency fluctuation and political instability and
may not be suitable for all investors.
5 EMD Yield Spreads Remain Above Pre-Recession Levels...
Source: Barclays, Bloomberg, LPL Financial 12/31/12
The Barclays Global EM Bond Index is an unmanaged index and
cannot be invested into directly. Past performance is no guarantee
of future results.
10
8
6
4
2
0
Barclays Global Emerging Market Bond Index Spread
Yiel
d Sp
read
s (%
)
‘03 ‘04 ‘05 ’06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13
4 Yields Dropped to New Lows but Stand Out in a Low-Yield
World
Source: Barclays, Bloomberg, LPL Financial 01/11/13
High-yield spread is the yield differential between the average
yield of high-yield bonds and the average yield of comparable
maturity Treasury bonds.
1400
1200
1000
800
600
400
200
0
(%)
Average Yield of High-Yield Bonds as Percent of Average Treasury
Yield
‘03 ‘04 ‘05 ’06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13
Municipal bonds are subject to availability, price, and to
market and interest rate risk if sold prior to maturity. Bond
values will decline as interest rate rise. Interest income may be
subject to the alternative minimum tax. Federally tax-free but
other state and local taxes may apply.
This information is not intended to be a substitute for specific
individualized tax, legal or investment planning advice. We suggest
that you discuss your specific tax issues with a qualified tax
advisor.
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Investment-Grade Corporate Bonds: Typically Stable in a
Slow-Growth Environment
The average investment-grade corporate bond yield fell further
into record-low territory in 2012 [Figure 7]. Similar to high-yield
bonds, the low yield is offset by valuations relative to Treasuries
that are near historical averages and not reflective of an
expensive market. For some investors, such yield levels may not be
exciting, but yields vary depending on the specific investment
used. We believe investment-grade corporate bonds can still be used
as an income-producing option in fixed income markets considering
historically low Treasury and MBS yields. The average
investment-grade corporate bond yield spread to Treasuries was
1.4%, just above the 1.3% historical average and a considerable
advantage over Treasuries [Figure 8].
Corporate credit quality metrics stopped improving mid-way
through 2012, but remain stable and provide a firm underpinning. A
slow growth environment for the U.S. economy, which we expect to
continue for the foreseeable future, still allows for corporate
credit quality to be maintained and not necessarily turn into a
threat for bondholders.
Preferred Stocks: Shrinking Market With Attractive Yields
Although called “stocks,” preferred stocks possess bond-like
characteristics, and income-seeking investors should consider the
asset class. Preferred stocks, which are primarily issued by
financial companies, generally witnessed rising prices in 2012. The
marketplace has realized that domestic banks have done an excellent
job of building minimal capital levels to be held against future
losses.
Strong demand and a shrinking preferred stock market continued
to support prices during 2012. Preferred issuers continue to redeem
their higher interest-paying issues both in response to low
interest rates and forthcoming regulatory changes. At the same
time, new issuance remained muted. The furious pace of redemptions
caused the preferred market to shrink overall over 2012, according
to Bank of America Merrill Lynch Index data. In response, yields
declined throughout the year, but with an average yield of 5.1%
preferred stocks can still be a good income vehicle.
Despite the decline in yields, preferred stocks still yield 1.3%
more than comparable Treasuries, according to Merrill Lynch Index
data. Again due to the varied nature of the preferred market, the
yield advantage to comparable Treasuries may vary depending on the
specific investment product.
Financial regulatory reform will continue to impact preferred
stocks. Bank capital rules put in place in 2010 continue to push
issuers to retire certain types of preferred securities.
Redemptions helped create a favorable supply-demand balance for
investors, as demand remained high during 2012, while the market
gradually shrank. Redemptions are likely to continue in coming
months, which means further price gains, if any, are limited.
Therefore, the now-lower level of yield will be a primary driver of
return. Nonetheless, we believe the above-average income coupled
with gradually improving bank credit quality still make preferred
securities a good income vehicle.
8 Corporate Bond Yield Spreads Remain Just Above the Historical
Average
Source: Barclays, Bloomberg, LPL Financial 12/31/12
Corporate bonds are considered higher risk than government bonds
but normally offer a higher yield and are subject to market,
interest rate and credit risk as well as additional risks based on
the quality of issuer coupon rate, price, yield, maturity, and
redemption features.
6.5
5.5
4.5
3.5
2.5
1.5
0.5
Corporate Yield Spread to TreasuriesHistorical Average
Yiel
d Sp
read
s (%
)
‘00 ‘01 ‘02 ’03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘12‘11 ‘13
7 Average Corporate Bond Yields Fell Further Into Record
Territory but Remain a High-Quality Income Option
Source: Barclays, Bloomberg, LPL Financial 12/31/12
The Barclays Corporate Bond Index is an unmanaged index and
cannot be invested into directly. Past performance is no guarantee
of future results.
‘03 ‘04 ‘05 ’06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13
10
8
6
4
2
Barclays Corporate Bond Index Yield
Yiel
d (%
)
6 …But Yields Dropped to a New Historic Low
Source: Barclays, Bloomberg, LPL Financial 12/31/12
Barclays Global EM Bond Index is an unmanaged index and cannot
be invested into directly. Past performance is no guarantee of
future results.
‘03 ‘04 ‘05 ’06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13
14
12
10
8
6
4
Barclays Global Emerging Market Bond Index Yield
Yiel
d (%
)
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Over the longer term, however, investors should realize that
interest rate increases remain a risk, even though preferred stocks
exhibited good resiliency over bouts of rising interest rates over
the past three years. Since preferred stocks are perpetual or have
extremely long 30- to 50-year maturities, they possess interest
rate sensitivity. The yield advantage to Treasuries will help
offset higher interest rate risk, but investors need to be aware of
this risk.
Floating Rate Bank Loans: More Conservative Approach to
High-Yield
Companies rated below investment grade issue loans via banks
(hence the name “bank loans”) for their short-term funding needs.
Most bank loans are senior secured debt, as the companies generally
pledge specific tangible assets for the loan, ranking them above
traditional bonds and equities in a corporation’s capital
structure. These securities typically pay a higher yield than
short-term securities (generally 2.5 – 3.5% above Libor, the London
Interbank Offered Rate) and provide protection against rising
interest rates since the interest rate on bank loans adjusts at
regular intervals to reflect changes in a short-term rate (usually
3-month Libor). Unlike traditional fixed-rate bonds where rising
interest rates hurt their prices, when rates rise, bank loans pay a
higher rate and their prices do not necessarily fall.
Bank loans have re-emerged as an income alternative since yield
differentials between bank loans and other income-generating
sectors, such as high-yield bonds and emerging market debt narrowed
considerably in 2012 [Figure 9]. During market downturns, bank
loans have historically been less volatile than either high-yield
bonds or emerging market debt. Given the higher valuations of both
high-yield bonds and emerging market bonds, bank loans make an
attractive alternative when considering lower rated bonds that
still generate above-average interest income.
Like high-yield bonds, credit quality metrics are good, and
defaults remain well below the historical average. Moody’s
forecasts a low default rate to persist through much of 2013, a
forecast we agree with given our outlook for sluggish but positive
growth that has traditionally been good for corporate debt
obligations.
Build America Bonds: Insulated From Significant Credit Quality
Deterioration
The Build America Bond program expired at the end of 2010, but
BAB prices have benefited from broad high-quality bond strength
since then. Their high-quality and a scarcity premium also helped
support bond prices.
Born from the $787 billion American Recovery and Reinvestment
Act (ARRA) signed into law in 2009, Build America Bonds have been
well received, as taxable bond investors have embraced BABs as a
diversification investment to existing holdings of corporate,
Treasury, and mortgage-backed bonds in their portfolios. BABs are
included in the widely followed Barclays Capital Bond Indices, and
therefore are subject to regular purchases from passive investors
who closely mimic benchmark positions.
Floating rate bank loans are loans issued by below
investment-grade companies for short-term funding purposes with
higher yield than short-term debt and involve risk.
Preferred stock investing involves risk, which may include loss
of principal.
Government bonds and Treasury bills are guaranteed by the U.S.
government as to the timely payment of principal and interest and,
if held to maturity, offer a fixed rate of return and fixed
principal value. However, the value of a fund shares is not
guaranteed and will fluctuate.
9 The Yield Disparity Between Bank Loans and High-Yield Bonds
Has Narrowed Sharply
Source: S&P Leveraged Loan Index, Barclays High-Yield Index,
LPL Financial 01/11/13
All indices mentioned above are unmanaged and cannot be invested
into directly. Past performance is no guarantee of future
results.
High-yield/junk bonds are not investment-grade securities,
involve substantial risks, and generally should be part of the
diversified portfolio of sophisticated investors.
6
5
4
3
2
1
0
-1
Yield Advantage of High-Yield Bonds to Bank Loans
(%)
‘03 ‘04 ‘05 ’06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13
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BABs are not without risks, and interest rate risk remains the
greatest potential threat. The vast majority of issuance is long
term, with 90% of BABs maturing beyond eight years, according to
The Bond Buyer data. The longer term maturities of BABs make them
among the more sensitive to interest rate changes within the bond
market. Price declines associated with rising interest rates may
offset the benefit of higher interest income.
We believe interest rates will remain relatively range-bound and
will not increase immediately. We expect lower returns as further
price gains are limited in addition to the now-lower level of
yields. We believe the decline in high-quality bond yields has run
its course, which makes higher interest rates a potential risk.
In a low-yield world, BABs remain an option for income-seeking
investors with an average 4.4% yield, according to Wells Fargo
Index data [Figure 10]. While average yields declined in 2012, the
yield advantage finished at a notable 1.6% above comparable
maturity Treasuries.
We believe state revenues will continue to improve, but many
local government budgets will remain tight in 2013 and likely
beyond. Municipal defaults remain concentrated among the most
speculative issues, a trend we expect to continue. BABs are among
the highest-quality municipal bonds, and we expect them to be
insulated from significant credit quality deterioration. Since most
BABs are issued for qualifying infrastructure projects, the
essential service nature provides an extra level of security.
Federal budget cuts (sequestration) remain a potential but
manageable risk for BAB issuers. The Office of Management and
Budget (OMB) has indicated that subsidy payments to BABs issuers
via the federal government may be partially cut in the event that
spending cuts as outlined in the Budget Control Act of August 2011
are implemented in coming months. We believe most BABs are strong
enough to endure potential cuts, but subsidy reductions could lead
to modest market weakness if smaller BABs issuers are impacted.
n
10 Build America Bonds Yields Remain Stable in a Low-Yield
Range
Source: Wells Fargo, Bloomberg, LPL Financial 1/11/2013
The Wells Fargo Build America Bond Index is an unmanaged index
and cannot be invested into directly. Past performance is no
guarantee of future results.
6.5
6.0
5.5
5.0
4.5
4.0
Wells Fargo Build America Bond Index Yield
Yiel
d (%
)
Jan‘11
May‘11
Sep‘11
Jan’12
May‘12
Sep‘12
Jan‘13
The issuance of Build America Bonds began in April of 2009. They
were authorized by the ARRA economic stimulus of 2009 and can be
issued for qualifying infrastructure projects. They are taxable
municipal bonds and are considered a category of bonds.
Build America Bonds (BABs)BABs originated from the American
Recovery and Reinvestment Act (ARRA) to allow municipalities to
issue taxable bonds for qualifying infrastructure projects. By
expanding the investor base to taxable investors, BAB issuance was
intended to facilitate municipalities’ ability to obtain funding
for important infrastructure projects given still uncertain markets
in the wake of the financial crisis. BABs have been a success, and
the market has grown to $188 billion, according to The Bond
Buyer.
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Implementation
Model Wealth Portfolios (MWP) – Income Focused
In this publication, we highlight our favorite individual sector
and asset class ideas for income. However, with Model Wealth
Portfolios (MWP), LPL Financial Research combines multiple asset
classes and sectors to create a complete portfolio that seeks
excess return and, secondarily, generates significantly higher
overall yields than the LPL Financial Research blended
benchmarks.
Within these Income Focused Models, we modify our asset
allocation models to increase their income-generating ability. Fund
selection is focused on identifying those mutual funds that have
historically performed very well with a good portion of their
performance coming from income. The following table highlights
relevant statistics of MWP Income Focused Models.
Income Focused Model Wealth Portfolio Performance, Annualized
(Gross)
Model Portfolios 3-Months YTD 2012 1-Year 3-Year Since Inception
3/1/08
Aggressive Growth
MWP Income Focused 0.85% 11.83% 11.83% 7.12% 0.71%
AG Benchmark 0.24% 15.59% 15.59% 10.69% 4.03%
+ / - Benchmark 0.60% -3.76% -3.76% -3.56% -3.32%
Growth
MWP Income Focused 1.67% 12.81% 12.81% 7.82% 1.42%
G Benchmark 0.24% 13.77% 13.77% 10.11% 4.51%
+ / - Benchmark 1.42% -0.96% -0.96% -2.29% -3.09%
Growth With Income
MWP Income Focused 1.48% 13.22% 13.22% 8.29% 2.89%
GwI Benchmark 0.24% 11.34% 11.34% 9.23% 5.00%
+ / - Benchmark 1.24% 1.88% 1.88% -0.94% -2.12%
Income With Moderate Growth
MWP Income Focused 1.84% 13.09% 13.09% 7.96% 4.01%
IMG Benchmark 0.23% 8.81% 8.81% 8.10% 5.22%
+ / - Benchmark 1.62% 4.27% 4.27% -0.15% -1.21%
Income With Capital Preservation
MWP Income Focused 2.27% 13.21% 13.21% 8.59% 5.50%
ICP Benchmark 0.21% 6.25% 6.25% 6.80% 5.22%
+ / - Benchmark 2.06% 6.96% 6.96% 1.79% 0.27%
Source: LPL Financial 12/31/12
Benchmark Indices Weights (as of 12/31/12)
Benchmark IndicesAggressiveGrowth Growth
Growth withIncome
Income with Moderate Growth
Income with Capital Preservation
Russell 3000 Index 95% 80% 60% 40% 20%
Barclays Aggregate Bond Index 0% 15% 35% 53% 70%
Citigroup 3-month Tbill 5% 5% 5% 7% 10%
Source: FactSet 12/31/12
For further information about the model portfolios, please
contact your LPL Financial advisor.
All indices are unmanaged and cannot be invested into
directly.
Please refer to page 16 for index descriptions and investment
objectives.
-
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Income Focused Model Wealth Portfolio Performance, Annualized
(Net)
Model Portfolios 3-Months YTD 2012 1-Year 3-Year Since Inception
3/1/08
Aggressive Growth
MWP Income Focused 0.21% 9.07% 9.07% 4.70% -1.37%
AG Benchmark 0.24% 15.59% 15.59% 10.69% 4.03%
+ / - Benchmark -0.03% -6.52% -6.52% -5.98% -5.40%
Growth
MWP Income Focused 1.03% 10.02% 10.02% 5.18% -0.80%
G Benchmark 0.24% 13.77% 13.77% 10.11% 4.51%
+ / - Benchmark 0.79% -3.75% -3.75% -4.93% -5.31%
Growth With Income
MWP Income Focused 0.85% 10.43% 10.43% 5.64% 0.61%
GwI Benchmark 0.24% 11.34% 11.34% 9.23% 5.00%
+ / - Benchmark 0.61% -0.91% -0.91% -3.59% -4.39%
Income With Moderate Growth
MWP Income Focused 1.21% 10.30% 10.30% 5.45% 1.75%
IMG Benchmark 0.23% 8.81% 8.81% 8.10% 5.22%
+ / - Benchmark 0.98% 1.49% 1.49% -2.65% -3.48%
Income With Capital Preservation
MWP Income Focused 1.63% 10.42% 10.42% 6.04% 3.15%
ICP Benchmark 0.21% 6.25% 6.25% 6.80% 5.22%
+ / - Benchmark 1.42% 4.17% 4.17% -0.76% -2.07%
Source: LPL Financial 12/31/12
Benchmark Indices Weights (as of 12/31/12)
Benchmark IndicesAggressiveGrowth Growth
Growth withIncome
Income with Moderate Growth
Income with Capital Preservation
Russell 3000 Index 95% 80% 60% 40% 20%
Barclays Aggregate Bond Index 0% 15% 35% 53% 70%
Citigroup 3-month Tbill 5% 5% 5% 7% 10%
Source: FactSet 12/31/12
For further information about the model portfolios, please
contact your LPL Financial advisor.
All indices are unmanaged and cannot be invested into
directly.
Please refer to page 16 for index descriptions and investment
objectives.
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Income Focused Model Wealth Portfolio Weights (as of
12/31/12)
Name TickerLPL Financial Statement Asset Class
Aggressive Growth Growth
Growth w/ Income
Income w/ Moderate Growth
Income w/ Capital Preservation
Harbor Capital Appreciation Instl HACAX Large Growth 21.5% 15.0%
11.5% 6.0% 4.0%
Allianz NFJ Dividend Value P ADJPX Large Value 18.0% 14.0% 13.0%
9.0% 0.0%
Oppenheimer Rising Dividends Y OYRDX Large Blend 15.0% 9.0% 8.0%
3.0% 3.5%
Royce Dividend Value Invmt RDVIX Small Value 11.0% 10.5% 5.0%
4.0% 3.0%
ING Global Real Estate W IRGWX REITs: Global/International 8.0%
6.0% 4.0% 4.0% 3.0%
SteelPath MLP Select 40 I MLPTX Sector (Energy) 6.0% 5.0% 4.0%
3.0% 2.0%
MainStay Epoch Global Equity Yield I EPSYX Global Stock 10.0%
9.0% 8.0% 5.0% 0.0%
Forward Credit Analysis Long/Short Inv FLSRX
Intermediate-/Long-Term Bond 0.0% 0.0% 5.0% 5.0% 5.0%
Delaware High-Yield Opportunities In DHOIX High-Yield Bond 0.0%
6.5% 8.0% 9.0% 10.5%
Pioneer Global High-Yield Y GHYYX High-Yield Bond 0.0% 9.0% 6.0%
5.0% 10.0%
Wells Fargo Advantage S/T Hi Yld Bd Adm WDHYX High-Yield Bond
0.0% 0.0% 0.0% 3.0% 6.0%
JPMorgan Mortgage-Backed Securities Sel OMBIX Mortgage-Backed
Securities 0.0% 0.0% 9.0% 15.0% 20.0%
Principal Preferred Securities P PPSPX Preferred Securities 0.0%
4.0% 6.0% 8.0% 10.0%
Eaton Vance National Municipals EIHMX Long-Term Municipal Bond
0.0% 0.0% 0.0% 4.0% 4.0%
Nuveen High-Yield Municipal Bond I NHMRX Tax-Free High-Yield
Bond 0.0% 2.0% 3.0% 9.0% 12.0%
Forward Global Infrastructure Instl KGIYX Sector
(Infrastructure) 6.0% 5.0% 5.0% 4.0% 2.0%
Cash* CASH CASH 4.5% 5.0% 4.5% 4.0% 5.0%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0%
Source: LPL Financial 12/31/12* The cash portion of this
portfolio is represented by money market instruments.
Income Focused Model Wealth Portfolio Mutual Funds
Name Ticker 1-Year 5-Year10-Year
Since Inception
Inception Date
Gross Expense Ratio
30-Day SEC Yield Web Address
Harbor Capital Appreciation Instl HACAX 15.69 2.99 8.03 10.59
12/29/87 0.68 www.harborfunds.comAllianz NFJ Dividend Value P ADJPX
14.17 N/A N/A 2.27 7/7/08 0.81 3.46
www.allianzinvestors.comOppenheimer Rising Dividends Y OYRDX 12.88
1.51 8.02 6.22 12/16/96 0.83 www.oppenheimerfunds.comRoyce Dividend
Value Invmt RDVIX 17.26 6.75 N/A 6.01 9/14/07 1.20
www.roycefunds.comING Global Real Estate W IRGWX 25.54 N/A N/A 2.79
2/12/08 1.06 2.18 www.ingfunds.comSteelPath MLP Select 40 I MLPTX
3.10 N/A N/A 8.87 3/30/10 0.97 www.steelpath.comMainStay Epoch
Global Equity Yield I EPSYX 10.86 1.80 N/A 5.75 12/27/05 0.94 3.11
www.mainstayinvestments.comForward Credit Analysis Long/Short Inv
FLSRX 13.96 N/A N/A 9.63 5/1/08 4.32 2.18
www.forwardinvesting.comDelaware High-Yield Opportunities In DHOIX
17.68 9.41 10.70 7.83 12/30/96 0.88 5.51
www.delawarefunds.comPioneer Global High-Yield Y GHYYX 16.57 7.36
N/A 7.32 12/27/05 0.74 9.06 www.pioneerinvestments.comWells Fargo
Advantage S/T Hi Yld Bd Adm WDHYX 6.53 N/A N/A 5.51 7/30/10 0.92
2.66 www.wellsfargo.com/advantagefundsJPMorgan Mortgage-Backed
Securities Sel OMBIX 5.16 7.44 5.86 6.89 8/18/00 0.73 3.22
www.jpmorganfunds.comPrincipal Preferred Securities P PPSPX 19.19
N/A N/A 9.20 9/27/10 0.85 5.37 www.principal.comEaton Vance
National Municipals EIHMX 14.50 4.22 5.28 5.51 7/1/99 0.53 3.52
www.eatonvance.comNuveen High-Yield Municipal Bond I NHMRX 21.05
3.61 5.06 5.37 6/7/99 0.65 5.05 www.nuveen.comForward Global
Infrastructure Instl KGIYX 14.95 -2.46 N/A -0.66 6/29/07 1.29 2.18
www.forwardinvesting.com
Source: Morningstar Direct, LPL Financial 12/31/12
30-day yield: The fund’s 30-day yield is based on yield to
maturity of a fund’s investments over a 30-day period and not on
the dividends paid by the fund, which may differ.Gross expense
ratio: The gross expense ratio is the fund’s total annual operating
expense ratio. It is gross of any fee waivers or expense
reimbursements. The performance data quoted represents past
performance. Past performance is not an indicator of future
results. Investment return and principal value will fluctuate so
that an investor’s shares, when redeemed, may be worth more or less
than their original cost. Current performance may be lower or
higher than the performance information quoted. To obtain current
month-end performance information, please refer to the manager’s
websites displayed in the table above. The performance data quoted
reflects the reinvestment of dividends and capital gains, is net of
expenses and reflects the maximum advisory fee of 2.5%. The
volatility of the benchmark used to compare performance is
materially different from that of the portfolio.
-
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Mutual Fund and ETP Income Producing Ideas
The following list comprises our suggestions for mutual funds
and ETPs that provide exposure to the income-producing sectors we
have outlined in this report.
Taxable High-Yield Bond Exposure – Mutual Funds
Name Ticker 1-Year 5-Year 10-YearSince Inception
Inception Date
Gross Exp. Ratio
30-Day SEC Yield
Taxable High-Yield Bonds
Artio Global High Income I JHYIX 15.47 8.90 N/A 10.20 1/30/03
0.74 6.33
MainStay High-Yield Corporate Bond I MHYIX 13.27 7.97 N/A 7.78
1/2/04 0.74 4.94
Pioneer Global High-Yield Y GHYYX 16.57 7.36 N/A 7.32 12/27/05
0.74 9.06
Hotchkis and Wiley High-Yield A HWHAX 17.64 N/A N/A 16.14
5/29/09 1.01 6.51
PIMCO High-Yield P PHLPX 14.44 N/A N/A 8.43 4/30/08 0.65
4.48
Delaware High-Yield Opportunities A DHOAX 17.34 9.08 10.37 7.53
12/30/96 1.18 4.97
Pax World High-Yield Bond Individual Inv PAXHX 13.41 7.05 7.98
6.13 10/8/99 0.97 6.57
BlackRock High-Yield Bond Instl BHYIX 17.12 9.56 10.47 8.07
11/19/98 0.63 5.87
Wells Fargo Advantage S/T Hi Yld Bd Adm WDHYX 6.53 N/A N/A 5.51
7/30/10 0.92 2.66
Fidelity Advisor High Income Advantage A FAHDX 18.01 7.49 11.36
9.62 1/5/87 1.03 4.59
Barclays Capital U.S. High-Yield Bond 15.81 10.34 10.62 N/A N/A
N/A N/A
Source: Morningstar Direct, LPL Financial 12/31/12
Taxable High-Yield Bond Exposure – ETPs
Name Ticker1- Year
5- Year
10- Year
Since Inception
Inception Date
Gross Exp. Ratio
30-Day SEC Yield
Mkt Ret Annlzd 1-Year
Mkt Ret Annlzd 5-Year
Mkt Ret Annlzd 10-Year
Mkt Ret Annlzd Since Incep
Taxable High-Yield Bonds
iShares iBoxx $ High-Yield Corporate Bd HYG 13.83 7.67 N/A 6.79
4/4/07 0.50 5.27 11.66 7.20 N/A 6.51
SPDR Barclays High-Yield Bond JNK 14.34 7.50 N/A 7.43 11/28/07
0.40 5.35 13.46 7.11 N/A 7.16
Barclays Capital U.S. High-Yield Bond 15.81 10.34 N/A N/A N/A
N/A N/A N/A N/A N/A N/A
Source: Morningstar Direct, LPL Financial 12/31/12
All indices are unmanaged and cannot be invested into
directly.
For the most recent month end performance please visit the
respective fund’s website: JHYIX: www.artiofunds.com; MHYIX:
mainstayinvestments.com; GHYYX: www.pioneerinvestments.com; HWHAX:
www.hwcm.com; PHLPX: www.pimco-funds.com; DHOAX:
www.delawarefunds.com; PAXHX: www.paxworld.com; BHYIX:
www.blackrock.com; WDHYX: www.wellsfargo.com/advantagefunds; FAHDX:
www.advisor.fidelity.com; HYG: www.ishares.com; JNK:
www.spdrs.com.
The performance data quoted represents past performance. Past
performance is not an indicator of future results. Investment
return and principal value will fluctuate so that an investor’s
shares, when redeemed, may be worth more or less than their
original cost. Current performance may be lower or higher than the
performance information quoted. To obtain current month-end
performance information, please refer to the manager’s websites
displayed in the table above.
The performance data quoted reflects the reinvestment of
dividends and capital gains, is net of expenses and does not
reflect the maximum advisory fee of 2.5%. Such fee, if taken into
consideration, will reduce the performance quoted above. The
volatility of the benchmark used to compare performance is
materially different from that of the portfolio.
30-day yield: The fund’s 30-day yield is based on yield to
maturity of a fund’s investments over a 30-day period and not on
the dividends paid by the fund, which may differ.
Gross expense ratio: The gross expense ratio is the fund’s total
annual operating expense ratio. It is gross of any fee waivers or
expense reimbursements.
-
LPL Financial Member FINRA/SIPC Page 12 of 16
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Tax-Free High-Yield Bond Exposure – Mutual Funds
Name Ticker 1-Year 5-Year 10-YearSince Inception
Inception Date
Gross Exp. Ratio
30-Day SEC Yield
Tax-Free High-Yield Bonds
Nuveen High-Yield Municipal Bond I NHMRX 21.05 3.61 5.06 5.37
6/7/99 0.65 5.05
Franklin High-Yield Tax-Free Inc Adv FHYVX 11.26 6.42 N/A 5.63
1/3/06 0.54 3.09
Oppenheimer Rochester National Muni A ORNAX 18.86 0.88 3.77 4.45
10/1/93 1.07 5.25
Wells Fargo Advantage Interm T/AmtF Inv SIMBX 6.50 5.48 5.02
5.49 7/31/01 0.84 1.33
Barclays High-Yield Municipal 18.14 6.15 N/A N/A N/A N/A N/A
Source: Morningstar Direct, LPL Financial 12/31/12
Tax-Free High-Yield Bond Exposure – ETPs
Name Ticker1- Year
5- Year
10- Year
Since Inception
Inception Date
Gross Exp. Ratio
30-Day SEC Yield
Mkt Ret Annlzd 1-Year
Mkt Ret Annlzd 5-Year
Mkt Ret Annlzd 10-Year
Mkt Ret Annlzd Since Incep
Tax-Free High-Yield Bonds
Market Vectors High-Yield Muni ETF HYD 16.74 N/A N/A 13.51
2/4/09 0.35 4.25 15.95 N/A N/A 12.76
Barclays High-Yield Municipal 18.14 N/A N/A N/A N/A N/A N/A N/A
N/A N/A N/A
Source: Morningstar Direct, LPL Financial 12/31/12
Emerging Market Debt Exposure – ETPs
Name Ticker1- Year
5- Year
10- Year
Since Inception
Inception Date
Gross Exp. Ratio
30-Day SEC Yield
Mkt Ret Annlzd 1-Year
Mkt Ret Annlzd 5-Year
Mkt Ret Annlzd 10-Year
Mkt Ret Annlzd Since Incep
Emerging Market Bonds
PowerShares Emerging Mkts Sovereign Debt PCY 21.00 10.71 N/A
10.37 10/11/07 0.50 3.93 20.80 9.81 N/A 10.23
iShares JPMorgan USD Emerg Markets Bond EMB 17.64 9.54 N/A 9.59
12/17/07 0.60 3.25 16.92 9.51 N/A 9.51
JPM EMBI Global 18.54 10.47 N/A N/A N/A N/A N/A N/A N/A N/A
N/A
Source: Morningstar Direct, LPL Financial 12/31/12
Emerging Market Debt Exposure – Mutual Funds
Name Ticker 1-Year 5-Year 10-YearSince Inception
Inception Date
Gross Exp. Ratio
30-Day SEC Yield
Emerging Market Bonds
T. Rowe Price Emerging Markets Bond PREMX 19.62 9.26 12.03 12.38
12/30/94 0.94 4.12
MFS Emerging Markets Debt A MEDAX 18.83 10.25 12.06 12.22
3/17/98 1.13 3.50
PIMCO Emerging Local Bond P PELPX 15.30 N/A N/A 8.68 5/30/08
1.00 3.46
JPM EMBI Global 18.54 10.47 11.56 N/A N/A N/A N/A
Source: Morningstar Direct, LPL Financial 12/31/12
All indices are unmanaged and cannot be invested into
directly.
For the most recent month end performance please visit the
respective fund’s website: NHMRX: www.nuveen.com; FHYVX:
www.franklintempleton.com; ORNAX: www.oppenheimerfunds.com; SIMBX:
www.wellsfargo.com/advantagefunds; HYD: www.vaneck.com; PREMX:
www.troweprice.com; MEDAX: www.mfs.com; PELPX: www.pimco-funds.com;
PCY: www.invescopowershares.com; EMB: www.ishares.com.
The performance data quoted represents past performance. Past
performance is not an indicator of future results. Investment
return and principal value will fluctuate so that an investor’s
shares, when redeemed, may be worth more or less than their
original cost. Current performance may be lower or higher than the
performance information quoted. To obtain current month-end
performance information, please refer to the manager’s websites
displayed in the table above.
The performance data quoted reflects the reinvestment of
dividends and capital gains, is net of expenses and does not
reflect the maximum advisory fee of 2.5%. Such fee, if taken into
consideration, will reduce the performance quoted above. The
volatility of the benchmark used to compare performance is
materially different from that of the portfolio.
30-day yield: The fund’s 30-day yield is based on yield to
maturity of a fund’s investments over a 30-day period and not on
the dividends paid by the fund, which may differ.
Gross expense ratio: The gross expense ratio is the fund’s total
annual operating expense ratio. It is gross of any fee waivers or
expense reimbursements.
-
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Investment-Grade Corporate Bond Exposure – Mutual Funds
Name Ticker 1-Year 5-Year 10-YearSince Inception
Inception Date
Gross Exp. Ratio
30-Day SEC Yield
Intermediate/Long High Quality Bond
Loomis Sayles Investment Grade Bond Y LSIIX 12.25 8.20 9.01 8.71
12/31/96 0.59 2.76
Dodge & Cox Income DODIX 7.94 7.00 5.64 7.60 1/3/89 0.43
2.94
PIMCO Total Return P PTTPX 10.25 N/A N/A 7.99 4/30/08 0.56
2.27
Federated Total Return Bond Instl FTRBX 6.58 6.54 5.73 6.61
10/1/96 0.45 3.07
Metropolitan West Total Return Bond I MWTIX 11.54 8.76 8.00 7.54
3/31/00 0.42 3.11
Western Asset Core Plus Bond I WACPX 8.44 8.09 6.89 7.00 7/8/98
0.45 2.48
Barclays Capital U.S. Aggregate 4.21 5.95 5.18 N/A N/A N/A
N/A
Long High Quality Bond
Vanguard Long-Term Investment-Grade Inv VWESX 11.66 10.01 7.67
8.85 7/9/73 0.22 4.03
Barclays Capital U.S. Govt Credit Long 8.78 10.16 7.96 N/A N/A
N/A N/A
Eclectic Fixed Income
Delaware Diversified Income A DPDFX 6.86 8.03 7.78 8.10 12/29/97
0.97 2.12
Franklin Strategic Income Adv FKSAX 12.62 7.69 8.62 7.70 8/12/99
0.64 3.60
Loomis Sayles Bond Instl LSBDX 15.13 7.79 10.18 10.32 5/16/91
0.63 3.85
Barclays Capital U.S. Aggregate 4.21 5.95 5.18 N/A N/A N/A
N/A
Source: Morningstar Direct, LPL Financial 12/31/12
Investment-Grade Corporate Bond Exposure – ETPs
Name Ticker1- Year
5- Year
10- Year
Since Inception
Inception Date
Gross Exp. Ratio
30-Day SEC Yield
Mkt Ret Annlzd 1-Year
Mkt Ret Annlzd 5-Year
Mkt Ret Annlzd 10-Year
Mkt Ret Annlzd Since Incep
Intermediate/Long High Quality Bond
iShares Barclays Intermediate Credit Bd CIU 7.81 6.46 N/A 6.23
1/5/07 0.20 1.69 7.20 6.27 N/A 6.24
iShares iBoxx $ Invest Grade Corp Bond LQD 11.68 8.20 6.28 6.72
7/22/02 0.15 2.76 10.58 8.06 6.08 6.69
SPDR Barclays Cap Interm Term Corp Bnd ITR 8.60 N/A N/A 8.01
2/10/09 0.15 1.87 8.38 N/A N/A 7.49
Vanguard Intermediate-Term Bond ETF BIV 7.03 7.80 N/A 7.85
4/3/07 0.11 1.77 6.80 7.72 N/A 7.84
Barclays Capital U.S. Aggregate 4.21 5.95 5.18 N/A N/A N/A N/A
N/A N/A N/A N/A
Long High Quality Bond
SPDR Barclays Capital Long CorpTerm Bd LWC 11.97 N/A N/A 15.64
3/10/09 0.15 4.29 9.39 N/A N/A 14.68
Vanguard Long-Term Bond Index ETF BLV 8.49 10.11 N/A 9.81 4/3/07
0.11 3.65 7.93 10.00 N/A 9.80
Barclays Capital U.S. Govt Credit Long 8.78 10.16 N/A N/A N/A
N/A N/A N/A N/A N/A N/A
Source: Morningstar Direct, LPL Financial 12/31/12
All indices are unmanaged and cannot be invested into
directly.
For the most recent month end performance please visit the
respective fund’s website: LSIIX: www.funds.natixis.com; DODIX:
www.dodgeandcox.com; PTTPX: www.pimco-funds.com; FTRBX:
www.federatedinvestors.com; MWTIX: www.mwamllc.com; WACPX:
www.leggmason.com; VWESX, BIV, & BLV: www.vanguard.com; DPDFX:
www.delawarefunds.com; FKSAX: www.franklintempleton.com; LSBDX:
www.loomissayles.com; CIU& LQD: www.ishares.com; ITR & LWC:
www.spdrs.com.
The performance data quoted represents past performance. Past
performance is not an indicator of future results. Investment
return and principal value will fluctuate so that an investor’s
shares, when redeemed, may be worth more or less than their
original cost. Current performance may be lower or higher than the
performance information quoted. To obtain current month-end
performance information, please refer to the manager’s websites
displayed in the table above.
The performance data quoted reflects the reinvestment of
dividends and capital gains, is net of expenses and does not
reflect the maximum advisory fee of 2.5%. Such fee, if taken into
consideration, will reduce the performance quoted above. The
volatility of the benchmark used to compare performance is
materially different from that of the portfolio. The volatility of
the benchmark used to compare performance is materially different
from that of the portfolio.
30-day yield: The fund’s 30-day yield is based on yield to
maturity of a fund’s investments over a 30-day period and not on
the dividends paid by the fund, which may differ.
Gross expense ratio: The gross expense ratio is the fund’s total
annual operating expense ratio. It is gross of any fee waivers or
expense reimbursements.
-
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Preferred Stock Exposure – Mutual Funds
Name Ticker 1-Year 5-Year 10-YearSince Inception
Inception Date
Gross Exp. Ratio
30-Day SEC Yield
Preferred Securities
Principal Preferred Securities P PPSPX 19.19 N/A N/A 9.20
9/27/10 0.85 5.37
Nuveen Preferred Securities I NPSRX 25.21 10.03 N/A 6.39
12/18/06 0.83 5.00
BofAML Preferred Stock Hybrid 11.64 6.13 N/A N/A N/A N/A N/A
Source: Morningstar Direct, LPL Financial 12/31/12
All indices are unmanaged and cannot be invested into
directly.
For the most recent month end performance please visit the
respective fund’s website: PPSPX: www.principal.com; NPSRX:
www.nuveen.com; PFF: www.ishares.com; PGF: www.powershares.com; PGX
& BKLN: www.invescopowershares.com, SAMBX:www.ridgeworth.com;
EIBLX: www.eatonvance.com; OOSYX:www.oppenheimerfunds.com.
The performance data quoted represents past performance. Past
performance is not an indicator of future results. Investment
return and principal value will fluctuate so that an investor’s
shares, when redeemed, may be worth more or less than their
original cost. Current performance may be lower or higher than the
performance information quoted. To obtain current month-end
performance information, please refer to the manager’s websites
displayed in the table above.
The performance data quoted reflects the reinvestment of
dividends and capital gains, is net of expenses and does not
reflect the maximum advisory fee of 2.5%. Such fee, if taken into
consideration, will reduce the performance quoted above. The
volatility of the benchmark used to compare performance is
materially different from that of the portfolio.
30-day yield: The fund’s 30-day yield is based on yield to
maturity of a fund’s investments over a 30-day period and not on
the dividends paid by the fund, which may differ.
Gross expense ratio: The gross expense ratio is the fund’s total
annual operating expense ratio. It is gross of any fee waivers or
expense reimbursements.
Preferred Stock Exposure – ETPs
Name Ticker1- Year
5- Year
10- Year
Since Inception
Inception Date
Gross Exp. Ratio
30-Day SEC Yield
Mkt Ret Annlzd 1-Year
Mkt Ret Annlzd 5-Year
Mkt Ret Annlzd 10-Year
Mkt Ret Annlzd Since Incep
Preferred Securities
iShares S&P U.S. Preferred Stock Index PFF 18.25 7.10 N/A
3.51 3/26/07 0.48 6.45 18.20 6.90 N/A 3.50
PowerShares Financial Preferred PGF 20.68 6.88 N/A 2.63 12/1/06
0.66 6.54 20.97 6.75 N/A 2.50
PowerShares Preferred PGX 14.51 N/A N/A 1.07 1/31/08 0.50 6.50
14.49 N/A N/A 0.94
BofAML Preferred Stock Hybrid 11.64 6.13 N/A N/A N/A N/A N/A N/A
N/A N/A N/A
Source: Morningstar Direct, LPL Financial 12/31/12
Bank Loan Exposure – Mutual Funds
Name Ticker 1-Year 5-Year 10-YearSince Inception
Inception Date
Gross Exp. Ratio
30-Day SEC Yield
Bank Loans
RidgeWorth Seix Floating RT High Inc I SAMBX 9.07 4.85 N/A 4.71
3/1/06 0.60 4.59
Eaton Vance Floating Rate I EIBLX 8.27 4.43 4.50 4.30 1/30/01
0.77 4.32
Oppenheimer Senior Floating Rate Y OOSYX 8.75 5.18 N/A 5.02
11/28/05 0.90 5.30
Barclays Capital U.S. High-Yield Bond 10.23 5.81 N/A N/A N/A N/A
N/A
Source: Morningstar Direct, LPL Financial 12/31/12
Bank Loan Exposure – ETPs
Name Ticker1- Year
5- Year
10- Year
Since Inception
Inception Date
Gross Exp. Ratio
30-Day SEC Yield
Mkt Ret Annlzd 1-Year
Mkt Ret Annlzd 5-Year
Mkt Ret Annlzd 10-Year
Mkt Ret Annlzd Since Incep
Bank Loans
PowerShares Senior Loan Port BKLN 10.26 N/A N/A 4.47 3/3/11 0.75
4.80 10.16 N/A N/A 4.25
Barclays Capital U.S. High-Yield Bond 10.23 N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A
Source: Morningstar Direct, LPL Financial 12/31/12
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LPL Financial Member FINRA/SIPC Page 15 of 16
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Build America Bond Exposure – ETPs
Name Ticker1- Year
5- Year
10- Year
Since Inception
Inception Date
Gross Exp. Ratio
30-Day SEC Yield
Mkt Ret Annlzd 1-Year
Mkt Ret Annlzd 5-Year
Mkt Ret Annlzd 10-Year
Mkt Ret Annlzd Since Incep
Build America Bond
PowerShares Build America Bond BAB 11.39 N/A N/A 12.33 11/17/09
0.35 4.21 10.72 N/A N/A 12.06
Barclays Build America Bond Index 13.46 N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A
Source: Morningstar Direct, LPL Financial 12/31/12
All indices are unmanaged and cannot be invested into
directly.
For the most recent month end performance please visit the
respective fund’s website: BAB: www.invescopowershares.com.
The performance data quoted represents past performance. Past
performance is not an indicator of future results. Investment
return and principal value will fluctuate so that an investor’s
shares, when redeemed, may be worth more or less than their
original cost. Current performance may be lower or higher than the
performance information quoted. To obtain current month-end
performance information, please refer to the manager’s websites
displayed in the table above.
The performance data quoted reflects the reinvestment of
dividends and capital gains, is net of expenses and does not
reflect the maximum advisory fee of 2.5%. Such fee, if taken into
consideration, will reduce the performance quoted above. The
volatility of the benchmark used to compare performance is
materially different from that of the portfolio.
30-day yield: The fund’s 30-day yield is based on yield to
maturity of a fund’s investments over a 30-day period and not on
the dividends paid by the fund, which may differ.
Gross expense ratio: The gross expense ratio is the fund’s total
annual operating expense ratio. It is gross of any fee waivers or
expense reimbursements.
IMPORTANT DISCLOSURES
This report has been prepared by LPL Financial from sources
believed to be reliable but no guarantee can be made as to its
accuracy or completeness. The opinions expressed herein are or
general information only, are subject to change without notice, and
are not intended to provide specific advice or recommendations for
any individuals.
LPL Financial does not engage in investment banking services nor
has LPL Financial or the analyst(s) been compensated during the
previous 12 months by any company mentioned in this report for any
non-investment banking securities-related services and
non-securities services nor has any company mentioned been a client
of LPL Financial within the past 12 months.
Default rate is the rate in which debt holders default on the
amount of money that they owe. It is often used by credit card
companies when setting interest rates, but also refers to the rate
at which corporations default on their loans. Default rates tend to
rise during economic downturns, since investors and businesses see
a decline in income and sales while still required to pay off the
same amount of debt.
Municipal Market Advisors is an independent strategy, research
and advisory firm.
Principal risk: An investment in exchange-traded funds (ETFs),
structured as a mutual fund or unit investment trust, involves the
risk of losing money and should considered as part of an overall
program, not a complete investment program. An investment in ETFs
involves additional risks: not diversified, the risks of price
volatility, competitive industry pressure, international political
and economic developments, possible trading halts, Index tracking
error.
Investing in mutual funds involve risk, including possible loss
of principal. Investments in specialized industry sectors have
additional risks, which are outlines in the prospectus.
International and emerging markets investing involves special
risks such as currency fluctuation and political instability and
may not be suitable for all investors.
Preferred stock investing involves risk, which may include loss
of principal.
Non-rated bonds have not been issued a rating by bond rating
agencies such as Standard & Poor’s and Moody’s. Bonds that have
not been rated by an agency are usually considered to be junk bonds
or fall below investment grade.
High-yield/junk bonds are not investment-grade securities,
involve substantial risks, and generally should be part of the
diversified portfolio of sophisticated investors.
The risks associated with investment-grade corporate bonds are
considered significantly higher than those associated with
first-class government bonds. The difference between rates for
first-class government bonds is called investment-grade spread. The
range of this spread is an indicator of the market’s belief in the
stability of the economy.
Government bonds and Treasury bills are guaranteed by the U.S.
government as to the timely payment of principal and interest and,
if held to maturity, offer a fixed rate of return and fixed
principal value. However, the value of funds shares is not
guaranteed and will fluctuate.
Mortgage-backed securities are subject to credit risk, default
risk, and prepayment risk that acts much like call risk, where you
get your principal back sooner than the stated maturity, extension
risk, the opposite of prepayment risk, and interest rate risk.
Spread is the difference between the bid and the ask price of a
security or asset.
Floating rate bank loans are loans issued by below investment
grade companies for short tern funding purposes with higher yield
than short-term debt and involve risk.
Credit quality: One of the principal criteria for judging the
investment quality of a bond. As the term implies, credit quality
informs investors of a bond or bond portfolio’s credit worthiness,
or risk of default.
Bonds are subject to market and interest rate risk if sold prior
to maturity. Bond values will decline as interest rates rise and
are subject to availability and change in price.
London Interbank Offered Rate (LIBOR): An interest rate at which
banks can borrow funds, in marketable size, from other banks in the
London interbank market. The LIBOR is fixed on a daily basis by the
British Bankers’ Association. The LIBOR is derived from a filtered
average of the world’s most creditworthy banks’ interbank deposit
rates for larger loans with maturities between overnight and one
full year.
The economic forecasts set forth in the presentation may not
develop as predicted and there can be no guarantee that strategies
promoted will be successful.
Investors should consider the investment objectives, risks,
charges and expenses of the investment company carefully before
investing. The prospectus contains this and other information about
the investment company. You can obtain a prospectus from your
financial representative. Read carefully before investing.
-
Member FINRA/SIPCPage 16 of 16
RES 4020 0113Tracking #1-134466 (Exp. 01/14)
Not FDIC or NCUA/NCUSIF Insured | No Bank or Credit Union
Guarantee | May Lose Value | Not Guaranteed by any Government
Agency | Not a Bank/Credit Union Deposit
This research material has been prepared by LPL Financial.
To the extent you are receiving investment advice from a
separately registered independent investment advisor, please note
that LPL Financial is not an affiliate of and makes no
representation with respect to such entity.
SEARCH FOR INCOME
INDEX DESCRIPTIONS
Citigroup 3-Month Tbill Index represents monthly return
equivalents of yield averages of the last 3 month Treasury Bill
issues.
Barclays High-Yield Bond Index is an unmanaged index of
corporate bonds rated below investment grade by Moody’s, S&P or
Fitch Investor Service. The index also includes bonds not rated by
the ratings agencies.
The Barclays Capital U.S. High-Yield Municipal Bond Index is an
unmanaged index made up of bonds that are non-investment grade,
unrated, or rated below Ba1 by Moody’s Investors Service with a
remaining maturity of at least one year.
Barclays Corporate Bond Index is an unmanaged index of
investment grade rated bonds issued by corporations and
quasi-government agencies. Corporate bonds issued by foreign
entities but denominated in US dollars are also included in the
index.
The Barclays Global Emerging Markets Bond Index is an unmanaged
index of external debt instruments of the emerging market nations.
This includes US dollar-denominated Brady Bonds, loans, and
Eurobonds.
Russell 3000® Index: measures the performance of the 3,000
largest U.S. companies based on total market capitalization, which
represents approximately 98% of the investable U.S. equity market.
As of the latest reconstitution, the average market capitalization
was approximately $4.8 billion; the median market capitalization
was approximately $944.7 million. The index had a total market
capitalization range of approximately $386.9 billion to $182.6
million.
The Wells Fargo Build America Bond Index is a comprehensive,
rules-based index measuring the performance of certain types of
municipal bonds issued under the American Recovery and Reinvestment
Act of 2009.
The BofAML Preferred Stock Hybrid Securities Index is an
unmanaged index consisting of a set of investment-grade,
exchange-traded preferred stocks with outstanding market values of
at least $50 million that are covered by Merrill Lynch Fixed Income
Research. The Index includes certain publicly issued, $25- and
$100-par securities with at least one year to maturity.
Barclays Aggregate Bond Index: is comprised of the Barclays
Government/Corporate Bond Index, Mortgage-Backed Securities Index,
and Asset-Backed Securities Index, including securities that are of
investment-grade quality or better, have at least one year to
maturity, and have an outstanding par value of at least $100
million.
The Barclays Capital Long Government/Credit Index measures the
investment return of all medium and larger public issues of U.S.
Treasury, agency, investment-grade corporate, and investment-grade
international dollar-denominated bonds with maturities longer than
10 years. The average maturity is approximately 20 years.
The Barclays Build America Bond Index is a subset of the
Barclays Capital Taxable Municipal Bond Index. The Index consists
of all direct pay Build America Bonds that satisfy the rules of the
Barclays Capital Taxable Municipal Index. The Barclays Capital
Taxable Municipal Bond Index represents securities that are
SEC-registered, taxable, dollar denominated, and issued by a U.S.
state or territory, and (i) have at least one year to final
maturity regardless of call features, (ii) have at least $250
million par amount outstanding, (iii) are rated investment-grade
(Baa3/BBB- or higher) by at least two of the following ratings
agencies.
The JPMorgan Emerging Markets Bond Index Global (“EMBI Global”)
tracks total returns for traded external debt instruments in the
emerging markets, and is an expanded version of the JPMorgan EMBI+.
As with the EMBI+, the EMBI Global includes U.S. dollar-denominated
Brady bonds, loans, and Eurobonds with an outstanding face value of
at least $500 million. It covers more of the eligible instruments
than the EMBI+ by relaxing somewhat the strict EMBI+ limits on
secondary market trading liquidity.
MODEL DESCRIPTIONS
Aggressive Growth Aggressive Growth will essentially be fully
invested in equity assets at all times (with the exception of a 5%
cash position). Investors in this portfolio should have a long time
horizon of 10 years or more, an understanding of the volatile
history of equity investments, and a propensity to add money to the
account on a systematic basis. This portfolio is very aggressive by
nature and should not be considered by anyone unwilling to take on
significant risk.
Growth Growth will be targeted to an allocation of 80% in equity
assets and 20% in fixed income assets (including a 5% cash
position). Investors in this portfolio should have a long time
horizon, an understanding of the volatile history of equity
investments, and a propensity to add money to the account on a
systematic basis. This portfolio is aggressive by nature and should
not be considered by anyone unwilling to take on significant
risk.
Growth With Income Investors in this portfolio should have a
long time horizon, and an understanding of the volatile history of
equity investments. The primary investment objective of this
portfolio is growth of principal. Fixed income assets are included
to generate income and reduce overall volatility.
Income With Moderate Growth Income With Moderate Growth will be
targeted to a normal allocation of 40% in equity assets and 60% in
fixed income assets (including a 7% cash position). Investors in
this portfolio should have a time horizon of more than five years,
and be comfortable with the volatile history of equity investments.
The primary investment objective of this portfolio is income, with
growth of principal an important consideration. Fixed income assets
form the core of the portfolio, generating income and lowering the
portfolio’s overall volatility. Equity assets provide the
opportunity for long-term growth of principal.
Income With Capital Preservation Income With Capital
Preservation will be targeted to a normal allocation of 21% in
equity assets and 79% in fixed income assets (including a 10% cash
position). Investors in this portfolio should have a time horizon
of more than five years, and be comfortable with the volatility
that will occur within the modest equity portion of their
investment portfolio. The primary investment objective of this
portfolio is income, with growth of principal as a secondary
concern. Fixed income assets form the core of the portfolio,
generating a steady income stream. A small investment in equity
assets provides the opportunity for modest long-term growth of
principal.